Milkshake Prices, International Reserves and the Mexican Peso.

Menu prices from 13 international restaurant franchises that operate in both El Paso and Ciudad Juárez are utilized to examine the behavior over time of the peso/dollar exchange rate. Parametric and nonparametric tests indicate that the price ratio alone provides a biased estimator for the exchange rate. In addition to the multiproduct price ratio, the empirical analysis also incorporates interest rate parity and balance of payments variables. The combination of unique microeconomic sample data with national macroeconomic variables illustrates one manner in which border economies provide information regarding the interplay of financial markets between Mexico and the United States. [ABSTRACT FROM AUTHOR]